Stock Plans in India
Overview
(Updated as of October 2026)
Companies offering stock compensation in India should be aware of the country's foreign exchange rules and restrictions. There are some exemptions which allow employees to remit funds to pay for stock compensation, such as the exercise of stock options. The company may be required to submit semi-annual reports to the Reserve Bank of India. Furthermore, the employees may be required to pay tax on remittances out of India above a certain threshold.
The taxation of stock compensation is straightforward except for two aspects. First, the fair market value of shares not listed on an India exchange must be determined by a Category One Merchant Banker. Second, whereas income tax withholding is required, social taxes are not applied to stock compensation in India.
Finally, be aware that the India tax year is from April 1 to March 31 of the following year.
Overview of Stock Plans in India
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Taxation of Employee
Stock options: No tax on grant. Difference between fair market value of the underlying shares at the date of exercise and the exercise price is taxable upon exercise as ‘salary’ income taxable at progressive tax rates. Unless shares are listed on a recognized stock exchange, the fair market value must be determined by a registered merchant banker. US exchanges are not considered to be recognized stock exchanges.
Restricted stock: Likely taxable following vesting. The fair market value must be determined by a registered merchant banker.
Restricted stock units (RSUs): Taxable upon transfer of shares following vesting for stock-settled awards and upon payment of cash for cash-settled awards. The fair market value must be determined by a registered merchant banker.
Performance stock: Taxable upon vesting. The fair market value must be determined by a registered merchant banker.
Bonus stock: Taxable upon receipt as regular salary income. Perquisite will be taxable when the shares are allotted or transferred to the employee, and the fair market value must be determined by the registered merchant banker.
Stock purchase plans: Discount is taxable on receipt as regular salary income. Perquisite will be taxable when the shares are allotted or transferred to the employee, and the fair market value must be determined by the registered merchant banker.
Retirement savings plans: Employer contributions are treated as current taxable income, assuming the employee’s rights are vested.
All Awards: Proceeds from the sale of shares of parent company stock (which have been issued pursuant to the exercise or vesting, as applicable, of a stock-based benefit) are subject to capital gains tax on the difference between the sale price for the shares and their fair market value on the date of exercise or vesting, as applicable. The gain will be taxed as long-term or short-term capital gains depending on the length of the holding period and whether the Parent’s shares are listed on a recognized stock exchange in India.
SPECIAL NOTE FOR UNLISTED PARENT COMPANIES: For eligible start-up companies, as per the provisions of Income Tax Act, 2025, taxation of stock-based benefits may be deferred beyond exercise or vesting, as applicable, until the earliest of: an employee’s termination of employment, the date on which the underlying shares are sold, or the five-year (60 month) anniversary from the end of the relevant tax year, as applicable.
Tax Withholding
Tax withholding is required. Amounts withheld must be remitted to tax authorities no later than the seventh day following the month in which the taxable event occurs. Generally, no tax deductions or tax benefits are available to the Indian subsidiary for providing stock plan benefits of the parent company to its employees. However, if the subsidiary reimburses the parent company for the actual costs, it may be entitled to a tax deduction subject to compliance with tax withholding provisions on such cost recharge. Furthermore, according to a clarification released by the Central Board of Indirect Taxes and Customs, it has been clarified that if the subsidiary reimburses the parent company, it is exempt from any Goods and Services Tax (GST) leviable upon transfer of any stock-based awards of the parent company to employees of a subsidiary. However, any additional cost or charges levied by the Indian subsidiary may be subject to GST. It is unsettled law as to whether such deduction applies where the parent company provides newly issued shares to the employees. Tax collected at source (TCS) is generally collected at the time of remittance of funds outside of India under the Liberalized Remittance Scheme (LRS). For remittances made for purposes other than education or medical treatment, TCS is currently levied at the rate of 20% on the amount remitted in excess of INR 1,000,000 (approximately US$ 11,500) in a financial year. The 20% TCS rate applicable to such remittances became effective from October 1, 2023, while the applicable threshold was increased from INR 700,000 to INR 1,000,000 with effect from April 1, 2025. |
Tax Reporting
Tax reporting is required by the Indian subsidiary on quarterly withholding tax returns that are due by the 31st day following the last day of the relevant quarter (except for the quarter ending March 31, in which case the quarterly withholding tax return can be filed by May 31). |
Social Security Contributions
Employers must contribute to the Employee State Insurance Fund and the Provident Fund, both of which are governed by the Code on Social Security, 2020 in accordance with applicable statutory requirements. Employee State Insurance (ESI) contributions are mandatory for eligible employees drawing wages up to INR 21,000 (US$ 220) per month (INR 25,000 (US$ 260) per month for persons with disabilities), subject to the establishment being covered under the ESI framework, with higher-paid employees typically covered instead by employer-provided private health insurance. Provident Fund contributions, which are intended to provide retirement and social security benefits, are mandatory for eligible employees up to the prescribed wage ceiling. Employers must also pay gratuity, a lump-sum benefit calculated on basic salary, generally payable after five years of continuous service (one year, on a pro-rata basis, for fixed-term employees) and capped at INR 20,00,000 (approximately US$ 21,000). In addition, certain state-specific legislations mandate contributions (typically less than US$ 5 (Five Dollars) per month) towards professional tax and labour welfare funds, as applicable in the respective jurisdictions. |
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| An offer to more than 50 persons (or more than 200 persons in aggregate in any financial year) by an Indian company may be considered an offer to the public, requiring registration and prospectus disclosure. However, the given thresholds do not apply to stock-based benefits offered by an Indian company to its employees or the employees of its subsidiaries. |
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For cross-border transactions involving securities of Indian or foreign companies, depending on the nature of the transaction, Reserve Bank of India (RBI) approval or reporting is required.
However, employees and directors of an Indian subsidiary of a foreign parent company may acquire foreign securities under a stock benefit plan without RBI approval if the conditions of the exemption introduced in August 2022 that replaced the former general permission exemption are met. Compliance with the new exemption may require the Indian subsidiary to undertake semi-annual reporting on Form OPI with the RBI through an authorized dealer bank.
Further, the Foreign Exchange Management (Overseas Investment) Rules, 2022, as amended, provide that foreign securities acquired by employees and directors of an Indian subsidiary of a foreign parent company will be counted towards such individual’s liberalized remittances under the liberalized remittance scheme limit of US$250,000
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Effective November 21, 2025, the equal-pay guarantee formerly set out in the Equal Remuneration Act, 1976 has been incorporated into the Code on Wages, 2019 which requires equal pay, in cash or in kind, for both sexes for the same work or work of a similar nature. Employees classified as workmen are also subject to certain welfare laws and any collective bargaining agreement that applies. The term generally excludes supervising or managerial employees.
No law prevents the employer from withdrawing stock‐based benefits at its discretion. However, if the parent company stock is listed on a recognized stock exchange in India, guidelines issued by the Securities & Exchange Board of India (SEBI) apply, according to which an employer is precluded from amending a stock benefit plan in a manner that is disadvantageous to the employee.
Termination benefits are payable only to workmen unless otherwise agreed upon contractually. It is uncertain whether stock-based benefits would be included in these calculations because such benefits are governed by the terms of the stock plan under which they were granted.
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Certain institutional and administrative provisions of the Digital Personal Data Protection Act, 2023 and the Digital Personal Data Protection Rules, 2025 (collectively, the “DPDP”), are already in force, but the substantive compliance obligations relevant to employers administering stock-based benefit plans, including requirements relating to notice, consent and processing of personal data, will become effective in May 2027.
The DPDP framework requires appropriate notice to individuals specifying the personal data being processed and the purposes for such processing, and consent where such consent is relied upon as the lawful basis for processing the personal data. Where incentive plans involve foreign entities, such as global parent companies, employee benefit trusts or international payroll administrators, cross-border transfers of personal data are generally permitted, subject to explicit employee consent, any other restrictions that may be prescribed by the Central Government for recipient country and compliance with the other applicable requirements of the DPDP framework.
The DPDP Act operates in addition to, and not in substitution of, other applicable laws. Accordingly, matters such as electronic and digital signatures continue to be governed by the Information Technology Act, 2000 and the rules and regulations made thereunder, to the extent applicable.
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The Information Technology Act, 2000, recognizes electronic signatures, including digital signatures and authentication of records by any subscriber affixing a digital signature. Any person may also apply to the certifying authority for issuance of a digital signature certificate.
Effective July 2024, the Indian Evidence Act, 1872, was replaced with “Bharatiya Sakshya Adhiniyam, 2023,” which permits electronic and digital records to serve as primary evidence provided such records satisfy certain requirements. Under the act, the court may require production of a digital or electronic signature certificate by the subscriber or certifying authority (except in the case of a secured digital signature, where the court presumes such a signature to be valid unless proven otherwise) to prove that the digital or electronic signature affixed to any electronic record is the signature of the subscriber.
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Nominal stamp duty applies if any document that evidences the acquisition of stock either is executed in India or is received in India and requires the consideration to be paid in India.
Where shares or other interests in a foreign entity are acquired by employees or directors resident in India under a stock-based benefit plan and such acquisition qualifies as an Overseas Portfolio Investment (OPI) under the applicable foreign exchange regulations, the Indian employer is required to report such acquisition on Form OPI through its authorized dealer bank. Form OPI must be filed within 60 days from the end of the relevant half-year (i.e., September or March) in which the acquisition occurs. Transfers or sales of such shares or interests, including repurchases by the foreign entity, are also subject to applicable reporting requirements through the authorized dealer bank. An Annual Performance Report (APR) is generally applicable to Overseas Direct Investment (ODI) and is not required merely because employees resident in India have acquired shares under a plan that qualifies as an OPI.Search results not displayed for crawlers